BlockFi’s Bankruptcy Drama: DOJ Lawsuit Dropped and More
Settlement Reached in $35 Million Crypto Asset Case
In a major turn of events, BlockFi’s bankruptcy wind-down administrator and the U.S. Department of Justice (DOJ) have agreed to settle a contentious lawsuit over a $35 million crypto asset transfer. The case has been dismissed, much to the relief of each parties.
Judicial Approval Secured
Judge Michael B. Kaplan of the U.S. Bankruptcy Court for the District of New Jersey gave the green light to this settlement on Friday, as confirmed by court records. The lawsuit, initiated in May 2023, attempted to redirect over $35 million in crypto from BlockFi to the U.S. government. The DOJ claimed warrants to seize these funds, linked to a fraud investigation involving two Estonian nationals—completely unrelated to BlockFi’s own financial troubles.
Jurisdictional Wrangling
Initially, the DOJ contended that the New Jersey Bankruptcy Court lacked the authority to dam the asset transfer from BlockFi. This dispute flared up amid BlockFi’s ongoing bankruptcy proceedings, adding one other layer of complexity to the situation.
Case Closed: No Going Back
Under the terms agreed upon, the lawsuit is now permanently closed—dismissed with prejudice, meaning it might probably’t be revived down the road. As a part of the deal, each parties will cover their very own legal expenses.
The Faces Behind the Case
On BlockFi’s side, Mohsin Meghji, the Plan Administrator for the wind-down estates, took the lead. Meanwhile, the DOJ was represented by senior trial counsel Seth B. Shapiro and his team from the Civil Division’s Commercial Litigation Branch.
BlockFi’s Road to Recovery
Back in May of last yr, BlockFi signaled its intention to shut down its web platform, partnering with Coinbase to facilitate client fund withdrawals. Customers with BlockFi Interest Accounts, retail loans, and personal client accounts were encouraged to make use of Coinbase for accessing their money.
Impact of FTX’s Collapse
BlockFi’s financial woes deepened following FTX’s collapse, which led to its bankruptcy filing in November 2022. They set April 28, 2024, because the deadline for patrons to reclaim their crypto holdings.
Settlements and Plans
In March of last yr, BlockFi managed to strike an $875 million settlement with the FTX and Alameda Research estates, effectively resolving claims value about $1 billion. CEO Zac Prince placed the blame for BlockFi’s downfall squarely on the shoulders of FTX founder Sam Bankman-Fried.
Chapter 11 Plan to Repay Creditors
By September 2023, the bankruptcy court had sanctioned BlockFi’s Chapter 11 plan, aiming to reimburse over 10,000 creditors. The company owes a staggering $10 billion to greater than 100,000 creditors, with significant debts to its top three creditors and the bankrupt hedge fund, Three Arrows Capital.
